Profiting from the Membership Economy

In her book, The Membership Economy, consultant Robbie Kellman Baxter boldly declares, “I’m convinced that the Membership Economy will have as profound an effect on society as the Industrial Revolution or the spread of the automobile. And the leaders who ignore it will follow carriage makers into oblivion.”1

Baxter defines membership as “the state of being formally engaged with an organization or a group on an ongoing basis.” In other words, instead of selling a product or service to a customer in the form of a single transaction, a business builds a relationship with a member by selling a subscription.

In this new paradigm, people pay fees to access a product or service, rather than buying and owning it. What does this look like in practice? Consider the following examples:

Netflix signs up subscribers once, and then they use the content as much as they want. For DVD subscribers, this means they can use three movies at a time, for a flat monthly rate. For streaming subscribers, they can watch one movie or television show after another. Forbes reported that Netflix expects to add 4 million new subscribers this quarter for a total of 61.4 million subscribers worldwide.2 The company’s projected revenues for 2015 are $6.8 billion, up from $5.5 billion in 2014 according to Bloomberg Business.

Pandora offers unlimited streaming of music. According to Yahoo! Finance, Pandora’s revenues for 2014 were $907 million, an increase of 40 percent from the previous year.3 The company counts 81.5 million users, a figure that went up 7 percent, while usage as measured by total listener hours increased 20 percent, to more than 20 billion hours.

com has 2.4 million subscribers in North America. Its initial plan was to charge users a small fee, such as 10 cents, for each email they exchanged with prospective dates. One of its cofounders was a former executive of the AAA motor club and insisted on using a membership model that charges users a monthly fee for unlimited use of the site. That decision had a lot to do with Match.com’s leadership position in the industry, and its annual revenues of more than $700 million.

LinkedIn has more than 300 million users in more than 200 countries and territories, up from just 500,000 users in 2005. LinkedIn grew its network rapidly by deploying a “freemium model”—most members use the service for free, but the ability to access such a vast network attracts other members who are willing to pay for upgraded services...